Elizaveta Belugina: of Greece and EUR

Elizaveta Belugina

Last week EUR/USD was capped by resistance in the 1.15 area. As the end of the month is getting closer, the Greek question starts to worry the markets more and more. Greece’s bailout program will be over on February 28, and the new government has no intention to seek for its prolongation.

The pressure on Greece is mounting. The ECB announced that it will no longer accept Greek bonds as collateral to provide liquidity to the nation’s commercial banks. Greek banks can still get emergency funds from the national central bank via the Emergency Liquidity Assistance (ELA) facility. However, the ECB may veto this program on February 18 depriving Greek banking sector from this money as well.

There are fears that it’s a matter of a few weeks until Greece runs out of money. It’s difficult to say how much cash the country has at the moment, but according to the unofficial data, it had about 2 billion euro in the middle of January. Still, as you may see from this schedule, the nation constantly needs to pay money for servicing its huge debt.

Prime Minister Alexis Tsipras claimed that he has a plan with realistic proposals about how to revive the Greek economy. On Tuesday Greek parliament will vote on confidence to the government – the cabinet has to prove that it’s able to work and has enough support for important decisions. On Wednesday Greece will sell short-term debt, while the Eurogroup will meet to discuss the nation’s problems. The EU economic summit will take place on Thursday. While negotiating with its European partners Greece will try to make a new agreement about a bridge credit which would keep the nation financed until June. Greece wants to get time for the debt negotiations: the nation is ready to pay, but at its own terms and is proposing a debt swap which will tie repayments to its GDP growth.

In the near term the euro’s dynamics will depend on whether Greece gets a bridge credit from the EU and on whether the European banking system will keep financing Greek banks. Such agreement will keep the single currency from a sharp fall. For a big selloff the bears need a total collapse of the negotiations. The falling star on the weekly chart is a bearish signal, but taking into account the fact that the euro is strongly oversold, we can’t rule out a correction to 1.1650. Still, as the uncertainty remains, below 1.1300 euro will move down to 1.1210 and lower. On Friday don’t miss the euro area’s flash GDP data for Q4.